Is crunch time coming at Sears?

The retailer has fewer and fewer assets to sell

Sears will need to come up with another $1.5 billion this year to cover its losses. It still has almost 300 stores it could auction off, and all its inventory. But there's not much else.

Sears is running out of furniture to burn.

The once-mighty retailer has spent the past four years selling assets to cover its money-losing operations and will need to come up with at least another $1.5 billion this year unless CEO Edward Lampert can quickly figure out how to turn a profit from its Sears and Kmart stores, according to debt rating agencies Fitch and Moody's.

That's not in the cards, says the one equity analyst who still tracks Sears Holdings, Matt McGinley at Evercore ISI.

“The company needs to stabilize the business, but it has yet to show that it is capable of doing so,” Moody's analyst Christina Boni says. “We anticipate a (cash) shortfall for the year and believe the company will continue to sell assets.”

Sears itself says that it plans to raise at least $300 million through unspecified asset sales before late July, when the first half of its fiscal year ends. The retailer, which began the year with only $238 million in cash, notes it can also borrow more than $300 million through its domestic credit facility, and says it has access to $3.5 billion more through other means.

But based on Fitch's analysis, Sears will need to turn to asset sales, too. That begs the question: What's left to sell?

Sears still owns 294 unencumbered Sears and Kmart stores across the country. (It actually owns 419 stores, but 125 are held in reserve in a bankruptcy-remote entity and cannot be sold.)

Last year, the Hoffman Estates-based company raised $3.1 billion, mostly from transferring 235 Sears and Kmart locations to Seritage Growth Properties, a real estate trust the retailer created, for $2.7 billion. Lampert and outside investor Bruce Berkowitz are two of the largest shareholders in both companies.

Using the $11.5 million-per-location average from the Seritage sale, Sears' remaining stores could be worth almost $3.4 billion. But the real value is likely lower, McGinley says. “The average store that went to Seritage is most likely better than the average one left over,” he says.

Fitch analyst Monica Aggarwal agrees that Sears' remaining stores probably are not that valuable if they're “in smaller markets or declining malls.” In a March 4 note, she adds, “There could be restrictions on the sale of some of these properties based on mall operating covenants.”

Those restrictions could turn off would-be buyers: Many remaining Sears stores are governed by reciprocal easement agreements between the retailer and the mall owners, which can preclude redevelopment. If Sears continues to shutter its locations, a new buyer could be left with an empty store that must remain a store—an unappealing prospect given the current state of big-box retail.

Sears Auto Centers, which have been on the auction block for several years, aren't particularly enticing, either. According to the company's most recent annual report, it had 675 auto centers in 2014. All but 27 of those are attached to full-line stores. That's troubling because no one knows how many of those stores will be open three or four years from now, McGinley says.

Another treasure is Sears' well-regarded Kenmore, Craftsman and DieHard brands. But any proceeds from a sale of those must go to fund the retailer's pension plans under a five-year deal it inked with Pension Benefit Guaranty Corp. to lessen the hit to the federal agency if Sears were to go bankrupt and renege on its obligations to retirees.

Sears will be able to limp along for the foreseeable future, analysts agree. But if its cash burn continues apace—as is widely expected, given management's inability to halt declining sales—a day of reckoning might arrive the following year. “We think there's a very low probability of a turnaround,” McGinley says.

Sears spokesman Howard Riefs rebuts the doomsday sayers and says the company has enough money to not only meet its obligations but to fuel a long-promised turnaround. He points out that Sears had $4.1 billion of liquidity and liquid assets at Jan. 30, including $3.6 billion worth of inventory. The company also recently announced plans to tap a $750 million term loan that is available through a $1 billion “accordion" extension of its credit facility, can access a $750 million short-term borrowing basket and can issue up to $1.7 billion in second lien notes.